Dolat Capital is bearish on Lupin has recommended sell rating on the stock with a target price of Rs 753 in its research report dated July 24, 2020.
Dolat Capital's research report on Lupin
FY20 was a redemption for Lupin as its US business revenues reported growth (albeit marginal 3% YoY) post a declining phase in FY18 and FY19. However, losses in its US subsidiaries have increased 3x at Rs27bn vs Rs9bn loss in FY19. This we believe is due to branded specialty portfolio (largely Solosec). Profitability of the standalone business halved to Rs7.3bn, even adjusting for the exceptional items, profits are lower by 20% YoY. Lupin utilized its deferred tax asset to offset losses, but has not created any new ones thus elevating the tax rate. SG&A and employee expenses rose 10% and 20% respectively, whereas R&D investment dipped 2% YoY. Debt reduced by 25% (Rs21bn) from Kyowa proceeds but interest costs continue to spike by 20%. Lupin is focused on cost control in a bid to improve profitability however, higher input costs partially offset the gains.
The stock’s current valuation factors in the best-case scenario ascribing full value to the US business, wherein execution remains critical. Further, clearance of key facilities (though no high value product pending approval) and immediate approval of Albuterol will act as positive triggers. SELL.
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